Commodity outlook by Tradebulls Securities: Buy crude, nickel

Commodity outlook and trading ideas by Bhavik Patel - Sr. Technical Analyst (Commodities), Tradebulls.

Indian rupee continues to outperform US Dollar and other emerging market currencies. In spite of weak domestic equity market and US dollar trading at two-year high, Indian rupee is still trading near 69.30. The fair value of INR should be near 70 but the government’s plan of raising debt through foreign borrowing bonds has given additional strength to Indian rupee. We expect any depreciation in INR only above 69.60 and INR may again test levels of 68.80-68.60. We expect the rupee to trade in a range of 68.80-69.50 next week.

Gold/Silver prices fell sharply yesterday after US Fed, as expected, cut 25 basis points but said they would be data dependent and not start a cycle of aggressive rate cut. This boosted the green back and the DXY broke the 98 level and we could see levels of 99 and 99.50 pretty soon. The signal from Fed that this is merely mid cycle adjustment to policy has made market participants bearish. Trade war tariffs solution is not coming soon, worldwide slowdown is apparent and the world’s biggest economy’s central bank is sounding less than dovish. All these are cocktail for a weak equity market. Gold/Silver needed a more dovish statement or atleast 50 basis point rate cut to break new high. We expect gold to test levels around $1,395. We are not expecting any major selling pressure as underlying long term trend still remains positive for both gold and silver. Geo political tension, global slowdown, trade uncertainty and buying from central banks will give tailwinds to gold and silver.

Oil prices, along with other commodities, fell after US Fed's rate cut. The less dovish stance triggered sell off across all asset class, including equity and commodity. Oil ignored bigger than expected decline in US inventory. Currently, supply is plentiful and demand growth is showing signs of slowing down. US Shale production and Saudi Arabia have enough spare capacity to offset any significant supply disruptions. In MCX, we expect crude to trade in a range of Rs 3,850-Rs 4,120 for next week.

Buy Crude
Target: Rs 4,130
Stoploss: Rs 3,900

Crude has closed above its 200-day moving average on the daily scale. In spite of positive fundamentals, crude oil prices have failed to lift but technicals are pointing north. RSI_14 has broken 50 levels and is trading at 53 while short-term moving average of 13 and 20 has given crossover signaling bullish trend. So we would recommend a long position with expected upmove till 4130 and stoploss of 3900.

Buy Nickel
Target: Rs 1,040
Stoploss: Rs 975

Last week, we recommended selling Nickel below 975 as it had strong support. Nickel failed to go below 975 and the underlying trend still is bullish. Nickel after being in the overbought zone has finished its consolidation and now is a prime for major upmove. Although all other base metals are trailing near 1 month high, Nickel continues to outperform based on bullish sentimental. There is no divergence on RSI_14 and is trading at 61. We recommend a long position with a target of 1,040 and stoploss of 975. Any long position should be exited below 975.
Disclaimer: The analyst may have positions in any or all the commodities mentioned above.